What Jiangsu Wanlin Modern Logistics Co., Ltd.'s (SHSE:603117) 26% Share Price Gain Is Not Telling You

Those holding Jiangsu Wanlin Modern Logistics Co., Ltd. (SHSE:603117) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, despite the strong performance over the last month, the full year gain of 3.1% isn't as attractive.

After such a large jump in price, when almost half of the companies in China's Logistics industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Jiangsu Wanlin Modern Logistics as a stock not worth researching with its 5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jiangsu Wanlin Modern Logistics

What Does Jiangsu Wanlin Modern Logistics' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Jiangsu Wanlin Modern Logistics over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiangsu Wanlin Modern Logistics' earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Jiangsu Wanlin Modern Logistics?

In order to justify its P/S ratio, Jiangsu Wanlin Modern Logistics would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.3%. The last three years don't look nice either as the company has shrunk revenue by 49% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Jiangsu Wanlin Modern Logistics' P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Jiangsu Wanlin Modern Logistics' P/S

The strong share price surge has lead to Jiangsu Wanlin Modern Logistics' P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Jiangsu Wanlin Modern Logistics currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

Before you take the next step, you should know about the 2 warning signs for Jiangsu Wanlin Modern Logistics that we have uncovered.

If you're unsure about the strength of Jiangsu Wanlin Modern Logistics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.